Glossary of Terms
Your credit card is an important tool for cash management, building and maintaining good credit history, and sheer convenience at the point of sale. As you use your card, apply to new ones to maximize your rewards, or transfer balances to save money on interest, you need to be aware of all the important terms you’ll see in your credit card agreement and promotional offers. That’s why we’ve put together this helpful and comprehensive glossary of terms for you to explore!
Affinity Card: Affinity cards are credit cards that offer rewards to benefit certain groups or organizations. These cards typically feature the group’s brand, logo, and accepted images and are co-marketed by the issuer and sponsor group. These cards are called affinity cards because the cardholder has an affinity to the organization featured, for example, your favorite university, airline, sports team, or charity.
Airline and Airline Miles Rewards Cards: Airline and airline miles reward cards are credit cards that offer airline miles as rewards when you make purchases. Airline rewards cards allow you to collect points that can be redeemed for discounts on tickets, as well as other travel perks such as hotel stays and car rentals. Many of these cards offer promotional incentives like bonus points when you open an account and spend a certain amount in your first few months. Collecting points can be easy as many of these rewards cards issuers allow cardholders to accrue points at a multiple of every dollar spent, with added incentives for spending on travel with particular partner companies. Make sure to read all of the terms in your credit card agreement to understand how blackout dates (if any) may effect how your points can be redeemed.
Annual Fee: An annual fee is a fee paid each year by the cardholder for carrying a credit card. This fee is assessed whether or not a card is actually used throughout the year. Some issuers may charge the fee once per year, while others may charge the cardholder in monthly installments. Annual fees can range from $25 to as much as $475 depending on the issuer and type of card. Annual fees are typically associated with cards that require balances to be paid of in full each month, where the credit card issuer does not earn interest. Many of these credit cards also come with certain perks and complimentary services for cardholders. This could include, for example, entry into lounges at airports, concierge services, upgrades, etc.
Annual Percentage Rate (APR): The APR is the cost of borrowing money, expressed as a yearly interest rate. For each billing period, the credit card issuer will charge 1/12 of the annual rate on borrowings. To calculate your compound APR (one that takes finance charges into account), you can use the formula APR = (1 + annual interest rate/12)^12 -1.
It’s important to understand that your card may charge several different APRs depending on various factors. These range from the type of transaction you make, whether you are current or delinquent on your payments, an introductory promotional rate, and whether your APR is fixed or variable. Below are definitions for the various types of APRs and what you should know when looking at a credit card offer.
APRs can also be fixed or variable.
Application Fee: Application fees are fees charged to you when you apply for a credit card.
Authorized User: An authorized user is a person who has been given permission to use a credit card by the account holder but is not financially or legally responsible for paying the bill. This differs from a joint account, where both users are equally responsible for paying the balances due.
Automatic Payments: Automatic payments are payments made for bills automatically and routinely from a source of funds such as a credit card or a bank account. Setting up automatic payments can save you time and ensure that bills are paid in full and on time. When using a credit card to pay for routine bills, it can also be a great way to rack up rewards points if you are using the appropriate rewards credit card.
Automatic Stay: Under bankruptcy law, an automatic stay is an injunction that stops creditors from collecting from a debtor who has declared bankruptcy.
Available Credit: Available credit is the difference between the credit limit and the charges outstanding under the credit card.
Average Daily Balance: The average balance on your credit card account over the course of the month. To calculate the average daily balance, add up the balance on your credit card on each day and divide by the number of days in the month.
Balance-To-Limit Ratio: The balance-to-limit ratio is the percentage of your credit card balance outstanding to your total credit limit on that credit card. For example, if you have a balance due of $100 and your credit limit is $500, your balance-to-limit ratio would be 20% ($100/$500). This is an important metric because it highlights how much of your total limit you are using. The higher the number, the less credit you have left to use and the higher risk of payback. Having a ratio that is too high can negatively effect your credit score, and thus your access to other forms of credit and loans as well. This is also often called utilization rate and it is important to manage this number both on an individual card by card basis, as well as in aggregate across all your cards (add up all balances, and all limits and divide).
Balance Transfer: A balance transfer is when you move a balance you owe on one credit card to another credit card. People do this predominantly to save money on interest payments where the APR on one card where they hold a high balance is higher than the APR on another card. Depending on your credit score, you may qualify for certain 0% balance transfer cards (no interest for a pre-determined promotional period of time). These cards may have balance transfer fees, which are typically offset by the interest you could be saving.
Balance Transfer Fees: Balance transfer fees are fees charged for transferring a balance from one credit card to another. These may be flat fees or a percentage of the balance that you are transfer.
Billing Statement: A billing statement is a monthly statement from your credit card issuer that shows purchases you have made for that billing cycle (period covered by the bill), payments you have made, total balance, minimum payment due, due date, APR, any finance charges, and any other disclosures as required such as notices for late payments, etc. These statements will typically arrive 21 days before the due date of the payment.
Business Cards: Business cards are credit cards that are appropriate for small businesses and corporations and can help the business manage its cash flows and earn rewards that often come in the form of cash back or travel rewards. Business credit cards can also help the owner more accurately track and manage categories of spend and expense and can help make budgeting easier.
Cash Advance: A cash advance from a credit card allows the cardholder to use part of their credit limit to take out cash from the card. This can be done at many ATMs, certain cash advance centers, at a bank, or via cash advance checks provided by the card issuer. Although a cash advance may be necessary, it is typically a very expensive way to obtain cash. Cash advances from a credit card usually carry a cash advance fee, which can either be a flat fee or more commonly, a percentage of the amount advanced (3% at a minimum). In addition to the cash advance fee, cash advances typically have higher APRs than regular purchases.
Other cash advance products outside of credit cards exist for those that need immediate cash. These are typically tied to your earnings and employment.
Cash Advance Fee: Cash advance fees are fees charged for advancing cash from a credit card. Fees can either be flat or more commonly, a percentage of the cash advanced.
Cash Back Card: Cash back cards are credit cards with rewards that pay cash back to the cardholder as a rebate. Cash back credit cards rewards can equal 1-2% of purchases on the card. These cards are most appropriate for individuals or businesses that make a high volume of purchases on their credit cards throughout the year and typically pay the cards balances off each month, thereby avoiding the higher interest charges that commonly come with these cards.
Cash Card: Cash cards are prepaid cards that can be used just like a credit card with purchases reducing the available credit on the card (the prepaid amount).
Chargeback: A chargeback occurs when the credit card issuer reverses a prior charge made to a cardholder’s account.
Charge Card: A charge card is a revolving line of credit, like a credit card, that requires the cardholder to pay off the balance in full each month. Unlike credit cards, there is no interest charged since all debt and purchases are paid off at the end of each billing cycle. Charge cards are most appropriate for holders who have the means to pay off balances in full and are using the card primarily as an expense management tool and cash replacement for big purchases. Certain American Express® cards are good examples of charge cards.
Charge Off: A charge off is when a credit card issuer deems it can no longer collect debt owed by a cardholder and writes off the amount (typically occurs after 6 months of no payment). In this case, the issuer will turn the debt over to a collections agency that will attempt to recover the amount from the cardholder. Additionally, the credit card issuer will inform the Credit Bureau, resulting in a negative entry in the cardholder’s credit score. This can result in denial of credit from other sources and negatively effect interest rates for the cardholder.
Credit Bureau: A Credit Bureau is an organization that collects and houses credit records on consumers and businesses. These records are the primary sources of information creditors use when determining the credit worthiness of a consumer when they apply for auto loans, home loans, credit cards, and other credit products. The major Credit Bureaus in the United States are Equifax, Experian, and TransUnion. Credit scores reported by these agencies have a significant bearing on your ability to obtain credit and it is important to monitor your credit for accuracy and make sure that incorrect entries that may be negatively effecting your score are resolved.
Credit Card: A Credit Card is a card issued by a bank or major financial institution allowing the cardholder to make purchases with the card up to a certain credit limit in lieu of cash on hand. For use of the financing, the cardholder pays interest on the principal outstanding. Interest charges usually begin one month after the purchases have been made. Credit cards are typically used as a short-term financing vehicle for consumer and business purchases.
Credit Card Agreement or Cardholder Agreement: A credit card agreement is the contract describing the detailed terms and conditions governing the use of a particular credit card. The agreement will provide details regarding APRs, finance charges, dispute resolution procedures, terms of service, personal information, how to address lost or stolen cards, and other pertinent details of card use.
Credit Counseling Service: Credit counseling services help consumers understand the credit repayment options available to them given their financial situation. Credit counselors can negotiate on the consumer’s behalf to help repair credit.
Credit History: Credit history is the history of payments, credit card accounts, loan accounts, and banking accounts held by a consumer.
Credit Limit: A credit limit is the maximum borrowings available to a cardholder for a specific credit card.
Credit Report: A credit report is the record of credit, loan, and payment history maintained by the Credit Bureaus and used by financial institutions as the primary source of data in determining a consumer’s credit-worthiness. Lenders use the information in the credit report to set lending rates as well as determine what about of debt a consumer can carry. Consumers should monitor their credit report for accuracy and make sure that incorrect entries that may negatively affect their report and score are resolved.
Credit Monitoring: Credit monitoring services allow consumers to monitor credit reports regularly for a fee and are useful for protecting against fraud and as being sources for early detection of mistakes on the credit report that may adversely affect credit score. Many credit monitoring services have free trial periods so consumers can try the service before paying a fee.
Credit Reporting Agency: Same as credit bureau above.
Credit Score: A credit score is a score ranging from 350 (low) to 850 (high) that indicates a consumer’s credit worthiness and likelihood of repaying debt obligations. Credit scores affect interest rates on loans, what size of loan you can qualify for, and what credit cards may be available to you. Factors that impact the score include payment history (on time payments vs. delinquent payments), number of credit accounts, utilization rate of credit available to you (how much debt you have compared to how much credit is available), and the length of your credit history (the longer in good standing, the better). A low score can negatively impact interest rates and availability of credit so it is important to know your score and take the steps to maintain high scores and improve low scores.
Credit Utilization Ratio: The credit utilization ratio is also known as the balance-to-limit ratio, this represents the percentage of your credit card balance outstanding to your total credit limit on that credit card. Having a ratio that is too high can negatively affect your credit score, and thus your access to other forms of credit and loans. It is important to manage this number on an aggregate basis across all credit accounts as well as individually (add up all balances, and all limits and divide).
Collection: Collection is when a delinquent account is sent to an agency that attempts to collect on the debt owed. This usually happens after an account is charged off.
Consumer Credit File: See credit report.
Co-Signer: A Co-Signer is a person who signs an agreement assuming equal responsibility and liability for making payments if a borrower defaults. Co-signers add security for the lender or credit card issuer and are often necessary when someone is trying to rebuild credit, build new credit history, or has bad credit. For example, students often need co-signers to get their first credit card.
Debt Consolidation: Debt consolidation is when multiple loans are combined into one new loan. Debt consolidation is most appropriate when multiple loans carry higher interest rates and/or varied repayment periods. Consolidating many loans into one loan with a longer repayment plan and lower interest can make repayment and cash flow management easier for the borrower. Credit card balances transferred to a 0% balance transfer card can act as a debt consolidation vehicle when used appropriately.
Default: A default is when a consumer does not make the payment on debt by the due date. When a default occurs, the APR on the credit card may be raised to the Penalty APR (or Default APR) and can also result in a reduction in the line of credit.
Default APR: See Penalty APR.
Debit Card: A debit card is a card issued by a bank or major financial institution tied to a cardholder’s bank account, allowing the cardholder to make purchases with the card instead of cash. Unlike a credit card, a debit card withdraws cash directly from the holder’s bank account and only authorizes a transaction when there are sufficient funds in the account.
Due Date: The date payments are due on an account.
Fair Credit Billing Act: The Fair Credit Billing Act (FCBA) is a law that governs how open-ended credit accounts, such as credit card, charge card, and retail revolving line of credit account charges can be disputed and resolved. If you’ve ever been charged twice for the same purchase on accident or had issues with a payment not being credited to your account, the FCBA procedures can help you fix those problems. These procedures cover:
If you have an issue with a credit card account, you should write to your creditor at the address provided for billing inquiries. You should send your mail certified, keep a copy for your records, and ensure that the letter includes the appropriate information. The creditor is obligated to resolve the matter within two billing cycles after receiving your letter. The form of your letter should include: Date, your name, address, your account number, a description of the issues, copies of statements and any proof supporting your claim. To read more about the procedures governing FCBA, visit FTC Website.
Fair Credit Reporting Act: The Fair Credit Reporting Act (FCRA) upholds the accuracy, fairness and privacy of information in the files of consumer credit reporting agencies, such as the Credit Bureaus. Your rights under the FCRA include the following:
Finance Charge: Finances charges are the total of all interest and other fees associated with borrowing money (any fees for transferring a balance, advancing cash, etc.). For details, read your agreement with credit card or loan issuer.
Fixed Rate APR: Fixed APRs are rates that are fixed for a determined set of time as described in your credit card agreement. If the period is not specified, then the interest rate cannot change for the life of your account.
Foreign Currency Charges: Charges for purchases made in countries outside of your home country. These could include foreign currency conversion charges.
Fraud Alert: An alert when you or your credit issuers suspect fraudulent activity on your credit account. These alerts typically require you to review the latest charges on the account and verify if those are valid charges made by you or fraudulent charges. If fraudulent, the creditor will investigate the charges to ensure that you are not held responsible for those charges. If there are fraudulent charges, your credit card number may change to protect you from further charges.
Grace Period: As it relates to loans, a grace period refers to the period of time between when a payment is due and when it is received where the creditor will assess no late charges or penalties. As it relates to credit card accounts, the grace period refers to the period of time where no interest charges are assessed if the balance due is paid off in full. Typically, you will not have interest charges if you pay off a balance in the same month when a purchase was made.
Identity Theft: Identity Theft is when your personal information, credit card, banking or other financial information is stolen for the financial gain of the thief. Identity theft most commonly occurs when you share your personal information with an unauthorized source. For example, if you receive an e-mail claiming you won a prize and asks for your information, if you lose or misplace your credit account statements, or if you inadvertently share your username and password information to unauthorized persons (someone hacking into your private network at home or at work). Though less common, security breaches at companies that hold your credit card information can lead to Identity Theft. To safeguard against Identity Theft, be careful with your documents, your personal information, usernames, passwords, and never share information to a suspicious source. Additionally, there are identity theft protection products and credit monitoring products that can help you actively monitor what changes occur in your credit so you can take action quickly if you see unauthorized activity.
Instant Approval Cards: Instant approval credit cards are those where the credit issuer informs you whether you are approved or not for the credit card immediately after submission of the application.
Interest-Free Period: The interest-free period is the period of time you have to pay your bill in full before interest charges are applied against the purchases made.
Interest Rate: The price paid for borrowing money.
Introductory APR: The Introductory APR is the APR charged during the introductory period when a credit card account is opened. Typically, these are lower APRs and serve as a promotional tool for the card issuer. APRs after the introductory period tend to be higher.
Joint Account: A Joint Account is an account held by two people where both are equally responsible for the account. Unlike an authorized user, who holds no financial responsibility to the account, a joint account holder is legally responsible for the account.
Late-Payment Fees: Late-Payment Fees are charges assessed on an account for late or delinquent payments. Late payments on credit card accounts can result in higher APRs in addition to the Late-Payment Fees.
LIBOR: LIBOR is an acronym for the London Interbank Offered Rate, a benchmark used as an index for setting variable rate loans. LIBOR, like Prime, is an interest rate used by banks to lend to other banks.
Line of Credit: Lines of credit are loans extended to consumers or businesses that can be drawn down (borrowed against) up to a predetermined limit, paid off or paid down, and drawn again. Typically, interest is charged on the amount drawn or outstanding, though there may be fees for undrawn amounts depending on the type of line of credit. Each type of line of credit has it’s own unique terms. Most credit cards, for example, will only charge interest on borrowed amounts, while business lines of credit may have other fees for just having a line of credit open, even if it is not borrowed against.
Linked Account: Accounts at financial institutions that are linked to each other to facilitate easy transfers between accounts or protection against overdrafts. These accounts can be credit accounts or banking accounts (checking, savings, investment, and other accounts).
Lost or Stolen Cards: If your credit card is lost, stolen, used without your authorization as a result of theft, identity theft, or fraud, you do not have to pay for these unauthorized charges (if they are greater than $50). As soon as you know your credit card has been lost or stolen, you should notify your credit card issuer.
Membership Fees: Membership fees for credit cards are annual fees you pay for being an account holder. Annual fees can range from $25 to as much as $475 depending on the issuer, type of card. Annual fees are typically associated with cards that require balances to be paid of in full each month, where the credit card issuer does not earn interest. Many of these credit cards also come with certain perks and complimentary services for the cardholder. This could include, for example, entry into lounges at airports, concierge services, upgrades, etc.
Minimum Interest Charge: The lease amount of interest that can be charged on an account if any interest is charged at all. For example, if your actual interest charges for a period fall below the minimum interest charge, you will be charged the minimum interest charge.
Minimum Payment: A Minimum payment is the lowest amount a cardholder is required to pay at each billing cycle. Cardholders can always pay in excess of the minimum payment to reduce their balance and reduce the interest they will pay over the life of the balance. The minimum payment is usually calculated as a percentage of the new balance total at each month but be sure to read your agreement for the full details. To find out how long it will take to pay off your balance if you make only the minimum payments and how much interest you will pay over that period, visit our minimum payment calculator.
Opt-In: Permission for inclusion in a particular service, marketing list, newsletter, etc.
Opt-Out: Explicit decline for inclusion in a particular service, marketing list, newsletter, etc.
Over-The-Limit Fee: Over-the-limit fees are charges assessed for borrowing or carrying a balance that exceeds your credit limit.
Overdraft: An overdraft is when a consumer writes a check, withdraws money, or makes a debit card transaction but does not have sufficient funds in the account used as the source of payment to cover the balance of the purchase. Overdrafts can be costly and the financial institution holding the accounts may impose fees.
Penalty APR: A penalty APR is when your APR increases due to a missed or late payment. These rates are significantly higher than your regular purchase rates.
Penalty Fees: Penalty fees are charges assessed on your account if you violate the terms of your cardholder agreement or other requirements on your account. For example, there may be penalties charged for exceeding your credit limit.
Periodic Rate: A periodic rate is the interest rate charged at each billing period. For most credit card issuers, the periodic rate is a monthly rate calculated by dividing the APR by 12.
Pre-Approval or Pre-Approved: Cards that you have been approved for prior to applying. You may see pre-approvals come to you in the mail and although the credit limit may not be defined, it may say you are pre-approved to receive a card with a limit up to a certain number.
Premium Credit Card or Prime Credit Card: A prime credit card is typically a card that requires the credit card applicant to have a high credit score. These cards have more strict guidelines and requirements for approval but also charge lower interest rates and offer cardholders certain premium features such as insurance, certain rewards, and specialty services.
Prepaid Card: A prepaid card works just like a credit card but requires the cardholder to deposit funds into the card prior to use. Prepaid cards are not credit cards and are more similar to debit cards since the limit on the card is determined by the funds deposited in the account. Prepaid cards are excellent tools for people who are trying to rebuild credit or establish credit history. Prepaid cards are also great tools for parents, who want to monitor what good and services their children spend and how much money they spend. Employers can also use prepaid cards as tools for controlling certain out-of-office expenses. Additionally, since prepaid cards are not credit cards and no credit is being extended to the cardholder, they are easy to obtain and use for anyone, regardless of credit history.
Prime Rate: The Prime Rate is an interest rate that banks charge their prime or most credit worthy customers. The Prime Rate is often used as an index and benchmark in lending (mortgage, auto, credit cards, etc.) and is largely determined by the interest rate that banks charge for lending to one another.
Points Cards: Points credit cards refers to credit cards that allow the cardholder to earn points when they make purchases. These points can be redeemed for cash back, merchandise, travel, and certain gifts.
Purchase APR: Credit cards always have a purchase APR, or the rate you will pay on new purchases.
Retail Credit Card: Retail credit cards are credit cards associated with retailers that often provide incentives for their shoppers. For example, your favorite department store may have a credit card that gives you select discounts when you use their card for purchases and may offer rewards and cash back for using their card. If you are a frequent shopper with a certain retail location, consider opening an account and be sure to compare rewards with other rewards cards to see what’s right for you.
Revolving Line of Credit: See Line of Credit.
Rewards Card: A rewards card is a credit card that allows cardholders to accumulate rewards points for making purchases. Rewards points may be redeemed for cash, gifts, merchandise, and discounts on certain items. Rewards cards can come in several categories, for example gas cards that offer special discounts on gasoline, travel cards that offer rewards for frequent travelers such as complimentary airline tickets, hotel upgrades, car rentals, and cash back cards.
Each type of rewards card is useful for a specific category of spend, so explore our rewards cards to find what is right for you. The answer may be that to maximize your rewards throughout the year, you may need a card for each category of frequent and major spend you make.
Schumer Box: The Schumer Box is a box that can be found on all credit card offers and promotional materials that summarizes the major terms of the credit card, such as:
Secured Credit Card: Secured credit cards are cards that require a cash deposit before an account is opened. Though it sounds like a prepaid card, it is different as the deposit is provided as security against the credit limit and is not the sole source of funds. The higher the deposit, the higher the limit will be. Unlike a prepaid card, a secured card is one where credit is actually issued. Secured cards are most often used and appropriate for people who are trying to build credit, don’t have a long credit history, or have had credit problems in the past. The security deposit acts as an instrument for the credit issuer to hedge the risk of issuing credit to someone who does not have a good credit history or has had problems in the past.
Service Fee: Services fees are fees that are charged to an account based on certain triggers, such as exceeding a credit limit, late payments, or other violations.
Set-up Fee: Fees for opening a new account.
Student Card: Student cards are credit cards designed for students. They typically require the student to have a co-signer and are most useful for building credit history. The CARD Act of 2009 provided some safeguards for individuals under 21, restricting issuers from opening credit card accounts unless the applicant can show ability to repay debt independently or has an adult co-signer who agrees to bear joint financial responsibility for the account.
Subprime Credit Card: Subprime credit cards are credit cards that are designed for consumers with lower credit scores (scores below 660). These credit cards typically have higher APRs to adjust for the risk of repayment that is associated with subprime borrowers.
Travel Rewards Cards: Travel rewards cards are credit cards that offer travel specific rewards when purchases are made and point are accumulated. Rewards can be redeemed for discounts on tickets, hotel stays, certain upgrades, and car rentals. Many travel rewards cards offer promotional incentives such as bonus points for opening an account and spending a certain amount in the first few months. These cards are best for frequent leisure travelers and business travelers.
Variable APR: Variable APRs are based on rates that change depending on a certain index or rate that is outside the control of the credit card issuer. For example, this may be the Prime Rate. See your credit card agreement and offer to find out how often your rates will re-adjust.
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